How Will GM Stock React if Potentially Costly UAW Contract Passes?

GM’s hourly labor costs could increase if the company’s four-year contract with the UAW is ratified tonight.
By Amanda Gomez ,

NEW YORK (TheStreet) -- A new study shows hourly labor costs could increase for General Motors Co. (GM) - Get Report if its union workers ratify a new four-year contract with the United Auto Workers this evening.

GM's average labor costs could rise to $60 per hour from $55 per hour by 2019 if the agreement is ratified, according to a study by an analyst at the Center of Automotive Research and a private consultant, Reuters reports.

Hourly wages, including benefits, are a little under half of total labor costs for union workers.

UAW had extended the deadline for the vote to today because skilled trade workers voted against the contract after a majority of union members voted in support of the proposal, Reuters added.

The study also looked at the latest UAW contracts with the other Detroit Three automakers and found that Ford Motor Co. (F) and Fiat Chrysler Automobiles (FCAU) will also be paying a premium by 2019.

Ford could see its hourly labor costs increased to $60 from $57 in a contract that workers are voting on until today.

Last month, UAW members ratified a four-year contract with Fiat Chrysler that will boost hourly labor costs to $56 from $47, Reuters noted.

General Motors stock closed higher by 0.55% to $36.34 on Friday afternoon.

Separately, TheStreet Ratings team rates GENERAL MOTORS CO as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

We rate GENERAL MOTORS CO (GM) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, notable return on equity, good cash flow from operations and growth in earnings per share. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. In comparison to the other companies in the Automobiles industry and the overall market, GENERAL MOTORS CO's return on equity significantly exceeds that of the industry average and is above that of the S&P 500.
  • Net operating cash flow has significantly increased by 204.04% to $3,308.00 million when compared to the same quarter last year. In addition, GENERAL MOTORS CO has also vastly surpassed the industry average cash flow growth rate of 10.20%.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 6.1%. Since the same quarter one year prior, revenues slightly dropped by 1.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • GENERAL MOTORS CO's earnings per share improvement from the most recent quarter was slightly positive. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, GENERAL MOTORS CO reported lower earnings of $1.64 versus $2.35 in the prior year. This year, the market expects an improvement in earnings ($4.78 versus $1.64).
  • You can view the full analysis from the report here: GM

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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